If a market proxy portfolio consistently beats all professionally-managed portfolios on a risk-adjusted basis, it may be concluded that
A) the CAPM is valid.
B) the market proxy is mean/variance efficient.
C) the CAPM is invalid.
D) the CAPM is valid and the market proxy is mean/variance efficient.
E) the market proxy is mean/variance efficient and the CAPM is invalid.

Question

Quizplus · Accepted Answer

The market proxy portfolio is mean/variance efficient if it consistently beats all professionally-managed portfolios on a risk-adjusted basis. The CAPM is valid if the market portfolio is mean/variance efficient. Therefore, the correct answer is D.

If a Market Proxy Portfolio Consistently Beats All Professionally-Managed Portfolios